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Rundle Mountain in Banff, Alta.

The following article is from Canadian Real Estate Wealth Magazine.

Whether it's long weekends at the cottage, weeks spent on the coast exploring Atlantic Canada, or months travelling across the vast mainlands, holiday-makers have numerous options to choose from. So, too, do investors looking for vacation properties in some of Canada's most sought-after markets.

Here are the top markets to consider when you're thinking of investing in vacation homes.

1) Banff & Canmore Kananaskis region
Peak season: July to August
Best buy: Tourist-zoned townhouse accommodation complexes
Average rent (1-bedroom): $1,200 a month

Banff National Park, the first national park in Canada, has been drawing tourists from all over the world for decades. Each year, the park plays host to four million visitors, not to mention the influx of migrants who work in the tourist industry in the summer months.

Eternally popular with visitors all year round, the nearby region of Canmore Kananaskis is abundant with opportunities for investors to house these visitors. Situated 15 minutes south of the park, Canmore is home to 12,000 permanent and 6,000 part-time residents. The town's close proximity to Calgary makes it a great stopover for regional visitors from the city, and its nearness to Banff draws visitors from the world over. The real estate market has undergone significant gentrification in the past nine years and is expected to continue to grow as the area bills itself as an all-season crowd-pleaser.

Banff itself has a permanent population of 8,300, and this grows during the tourist season, which peaks in July and August. Skiing, snowboarding and dog-sledding bring visitors to the area in the winter, while hiking, climbing, spas, fine dining and shopping are a pull for guests in the summer months.

Property types in Banff are varied, ranging from hostels to campgrounds, to inns, bed and breakfasts, chalets, condos and backcountry lodges. That said, owning rental property in Banff Park is somewhat restrictive, given its status as a UNESCO World Heritage Site.

Christopher Vincent, of Sotheby's International Realty Canada, explains that because Banff is a national park there is a Need to Reside Clause that permits ownership of property in the park only as long as the specifications of the clause are met.

In order to own property in the national park, the person living in the residence has to work in Banff, own a business in Banff, or have worked in the park for the last five years prior to retirement. This requirement can sometimes make purchasing an investment property challenging. That said, if you qualify, the returns are huge and the vacancy rates are consistently below 1 per cent.

Cap rates in Banff and Canmore are generally around 3–5 per cent, and properties in Canmore do not have the same restrictions. However, there are zoning requirements that investors should be mindful of, depending on their target tenant demographic.

According to Vincent, anything zoned as residential cannot be used for short-term rentals, therefore any rentals would have to be for more than 28 days. Vacation accommodation zoning allows for nightly or weekly rentals of up to 28 days maximum. The zoning of tourist home properties allows for both short-term and long-term stays.

"For the most flexibility, investors may consider tourist-zoned townhouse accommodation complexes, which allow for both long– and short-term rentals and fetch high rents," says Vincent.

Rentals in Banff National Park will fetch a premium, but properties just outside in Canmore are also lucrative. A 650–700 square foot one-bedroom plus den generally rents for about $1,200 per month, and a three-bedroom apartment will rent for about $2,000 a month.

"The rental rates in these regions are definitely higher than the surrounding areas," says Vincent.

Housing prices have declined slightly over the past few months, but have remained stable in the long term. In January, 2013, the average price of a single-family home in Canmore was $821,000 and the average price of an apartment was $260,000. One-bedroom units in popular condo-hotel developments can be picked up for as little as $160,000, and property management companies in the area will run them on behalf of the investors. Property taxes are generally low, and Alberta does not have a land transfer tax.

The variety of property types leaves investors with many options. "They could also buy into regular accommodation – anything from an entry-level regular two-bedroom apartment starting as low as $180,000, which will rent for about $1,100 a month, right through up to single-family homes," says Vincent.

"Banff and Canmore are two communities where people choose to come and spend the winter, and they tend to be short-term tenancies of about six months to a year," he explains. "It's a good, consistent turnover, and people are willing to pay a premium to spend that season in the mountains."

2) Niagara-On-The-Lake
Peak season: June to September
Best Buy: Old homes/Bed and Breakfasts
Average house price: $213,032
Average rent (high-end) $5,000 a week

Stunning vineyards, warm weather, shopping, golf and a thriving theatre scene – no, we're not talking about California. All of this draws tourists to Ontario's own Niagara-on-the-Lake, enticing an increasing number of visitors each year. The vacation rental market already enjoys a strong summer season and is poised for growth as visitors from near and far move past Niagara Falls and down the road to Niagara-on-the-Lake.

"Niagara is a tourism, cultural, culinary and recreational magnet unique to Ontario," says Nancy Brazeau, broker with Sotheby's International Realty Canada. It is also close to international airports and major population centres, both Canadian and American; over 30 million people are within a one day's drive of the town. "Demand for short– and long-term accommodation is driven by these factors," says Brazeau.

While visitors traditionally tend to spend one night in the area, Brazeau notes there has been a shift to extended weekend stays as well as increased interest in long-term stays on account of the cultural development that has taken place in the region.

"Our business is seasonal, with high season running parallel to the Shaw Festival season," she says. This draws about 300,000 visitors a year. The shoulder season is in April and May, October and November, and the high season runs from June to September.

Like many buzzing vacation spots, the town is ramping up events and festivals in a bid to become a 'four-season destination', adding the Icewine Festival in January to the roster of events to bolster rental activity in the off season.

Brazeau points to the Niagara-on-the-Lake Old Town, a national heritage district, as a prime submarket to investigate. With architectural influences that reflect 200 years of development, the Old Town continues to draw visitors. Grand homes in the town centre, originally built as cottages by wealthy Americans at the turn of the last century, have been transformed into bed and breakfasts welcoming visitors from around the world.

3) Whistler, B.C.
Peak Season: Year-round
Best buy: Condos, Chalets
Average rent: $1,051 a month

To winter sports enthusiasts, Whistler needs no introduction. But the mountain region is more than just home to some of the finest powder in the world. It's also home to a bustling year-round tourism industry – and a housing market that has stood the test of time, and hosted an Olympics to boot.

Nestled in the Coast Mountains of British Columbia, between the Pacific Ocean and Vancouver, Whistler continues to attract visitors from all over the world. Already the recipient of international recognition for being a prime, year-round vacation spot, its role as the host of the 2010 Olympic and Paralympic Winter Games catapulted Whistler onto the international stage. As the area continues to remain popular with long– and short-term visitors, the rental market keeps pace. For investors keen to snap up a revenue-generating rental, Whistler certainly has lots to offer.

"Whistler is a year-round full-service tourist resort," says Pat Kelly of Whistler Real Estate Company Ltd, who has serviced the area for 30 years. "We have everything here; it's better to ask what we don't have." He cites skiing, mountain biking, festivals and events, scenery, hospitality, arts and culture, as well as access to the mountains, as contributors to the high demand for rentals in the area.

Prices may have dropped slightly in recent years, but the market has performed reliably. According to Kelly, this balanced performance is consistent with vacation spots that are always in style. "Like many resort markets, values have consolidated in Whistler over the last three years; current pricing in most areas is good value when compared to historical price points, and we have been enjoying overall improvement in activity and values recently," he says.

Investors looking for a long-term cash-flowing investment would be wise to consider condos. Like Vancouver, Whistler has experienced a drop in condo sales in recent years, but prices have remained stable at around the $350,000 mark.

Condo-hotel units in particular are good buys, as access provided by the Sea to Sky Highway has also reduced the number of local residents looking to purchase second homes. Driving up for a day or long weekend and renting is now easier. This, coupled with the demand from international travellers and long-term visitors, means the rental market remains buoyant. "Hotels run about 55 per cent–60 per cent year-round," says Kelly. "As a year-round mountain resort, short-term rental is a big part of what we do."

Kelly believes that investment strategy, more than factors such as property type and price point, is the key to discerning what the 'best buy' in the market would be.

"The best buys depend on the individual investor's objectives; price is rarely the only consideration," he explains. "However, the money that has been made in real estate investment here has been made by way of appreciation over the long term. Most Whistler investments combine the opportunity for cash flow (which usually covers ownership costs), appreciation, and personal use and enjoyment at what is arguably the number one ski resort in North America."

At present, 65 per cent of the market is comprised of condos and townhouses, while 15 per cent of the market is made of up shared-ownership and single-family housing and the rest is vacant land. However, investors looking to develop may want to consider that the average price tag of a lot is substantial at $802,000.

Whistler Blackcomb is accessible from Vancouver via the Sea to Sky Highway. In addition to being a spectacular drive, it means investors and property managers can be in the mountains in less than two hours. The highway (Route 99) has also undergone significant redevelopment and expansion since 2003, thanks in part to the demand placed on it by the Olympics.

Whistler is home to 10,531 residents year-round and attracts 2.5 million visitors each year. The variety of activities available makes this rental market a draw during both winter and summer, although there are some months that stand apart from others.

"High visitor counts run from December to April and July through September," explains Kelly. "May, June and October are slower, but we are working very hard with festivals and events to attract people to the resort during these slower months."

The Real Estate Association of Whistler is quick to point out that the broad range of real estate options in Whistler – from affordable fractional condominium ownership to town-homes, single-family homes and luxury estates and hotel suites – has attracted more than 11,500 second-home owners from around the world.

4) Cape Breton
Peak season: May to October
Best Buy: Cottages

Average rent: $670 a month

Picturesque and historic, Cape Breton has more to offer investors than property with spectacular views. This island region of Nova Scotia attracts tourists year-round, creating a constant supply of tenants for vacation rental housing.

Cape Breton Island has been split into tourist regions, including Cabot Trail, Ceilidh Trail, Fleur-de-lis Trail, Marconi Trail and Bras d'Or Lake Scenic Drive, which became a UNESCO World Biosphere Reserve in June 2011. The flourishing wildlife and natural beauty are a constant draw for visitors, so when vacation rentals come on the market, they're quick to be snapped up, says local real estate agent Cathy Harvey. "Property on the Bras d'Or Lake is highly sought after."

Harvey points to the villages of Baddeck and Ingonish as high-end areas desired by investors and vacationers alike. Likewise, the famous Cabot Trail is attractive to many domestic and international travellers.

Cape Breton's enduring popularity and variety have made it a strong vacation rental market over the past 10 years, especially in the high season. "There are very few times when there is an empty apartment or rental unit here, so the vacancy rate will be very low," says Harvey. "The demand is greater than the supply."

And with everything Cape Breton has to offer, it's not hard to see why. With views of the ocean as well as scenic restaurants, shops and museums lining its shores, visitors arrive in droves to take in this Atlantic gem. As a result, the demand for seafront properties is high. Cottages on or within close proximity to the sea will yield high returns, especially in the summer months.

"Our peak season stretches from May through October," says Harvey. "Most seasonal rentals are full during the peak season and tend to be booked well in advance. Our busiest time is July and August."

With an average price of $150,000 in the region, Harvey notes that some homes are still available for $100,000, although not on the seafront. However, while properties along the water may come with a higher price tag, the enduring popularity with holidaymakers means they won't depreciate in value.

"Property on the Bras d'Or Lakes is a good, solid investment," affirms Harvey. The area draws hundreds of visitors each year, many of whom are interested in longer stays to enjoy the hiking, bird-watching, and boating that this area is known for internationally.

The island is best suited to a buy-and-hold strategy. The small amount of inventory can mean properties take a while to sell, and prices continue to appreciate. "People in Cape Breton generally don't 'have to' sell, so they wait it out and get their price in the end, and our values steadily increase. We don't seem to boom and bust like they do in other parts of the country," says Harvey.

Overall, the housing market in Nova Scotia is poised for even more growth as the economy on this tourist island expands. In fact, the expected economic growth for 2013 is 1.4 per cent, which, if met, would be the best performance in Atlantic Canada according to the Canada Mortgage and Housing Corporation. For the following year, it is projected to be 1.7 per cent.

5) Sunshine Coast
Peak season: A definite chance of full booking from May to end of September; Short-terms thereafter
Best buy: Waterfront separate guest cabins or whole homes
Average rent: $150 a night

The name "Sunshine Coast" evokes a summer vacation hotspot, but in recent years the area has been redeveloped to appeal to visitors even in winter months. Now one of Canada's affordable, all-season holiday destinations, this vacation rental market offers investors numerous options for cash-flow generation.

"Historically, the Sunshine Coast has been mostly a spring/summer destination. However, over the last five to 10 years we are not seeing our population dramatically decrease in the off season," says Joel O'Reilly of the Brynelsen O'Reilly Group, Royal LePage Sunshine Coast. "The area now offers something for everyone at all times of the year, including the winter months, such as snow-shoeing, cross-country skiing and storm watching. Investors looking to rent properties can now realize year-round benefits."

According to Tourism Sunshine Coast, the vacancy rate is very low to zero in the summer months, holidays and spring break. In this peak season, visitors flock to the coast for golfing, hiking and biking, spas, tours, music festivals, restaurants, boating, and endless nightlife activities.

Local RE/MAX realtor Fran Miller thinks the vacation rental market hasn't yet peaked. "It's a great place for income generation because it is a growth market – more tourists are coming every year, and the average single-family home price in last 12 months was $414,000," she says. "When compared to other markets close to Vancouver, such as Whistler, Victoria and Salt Spring, Sunshine Coast offers affordability and accessibility."

The cap rate varies depending on property type, as does the rent an investor can expect. According to Miller, the average nightly rent on the Sunshine Coast is $125–$150, with waterfront homes fetching almost $100 more, bringing in approximately $250 per night.

As for sale price, O'Reilly reveals that waterfront properties are a lucrative investment choice in this vacation rental market.

"The average price is approximately $400,000 for a three-bedroom, two-bath traditional non-waterfront home, but waterfront homes would have an average price of approximately $750,000. They go up into the multimillions, depending on house quality, lot size, frontage and location."

Certain markets will yield more in monthly income than others, as will properties that have amenities, such as a hot tub. Miller, an investor herself, points to Franklin Road in Gibsons as one area that attracts renters easily and frequently on account of its closeness to the beach and its general feel.

"Pender Harbour in general is a great buy these days, with plenty of waterfront. Hopkins is affordable and would be booked solid all year long if you could get a waterfront home there," she adds.

The close proximity to Vancouver is a draw for many – Sunshine Coast is just a 35-minute ferry ride from West Vancouver – as is the cottage country feel.

The Sunshine Coast Bed & Breakfast, Cottage Owners Association is the governing body for 93 vacation rental owners in the area. According to the association, 41 per cent of its members own cottages, 36 per cent own bed and breakfasts, and 23 per cent own suites. O'Reilly says cottages on the waterfront are a sound choice for investors, particularly given the current climate in other nearby tourist markets such as Vancouver.

"Currently, we find that oceanfront properties are most commonly purchased by investors, as our prices in relation to the rest of BC and Canada are so affordable," he explains. "West Vancouver, for example, is a 40-minute ferry ride from the Sunshine Coast; however, oceanfront property there is as much as 10 times as costly."

Editor's Note: An earlier version of this story incorrectly referred to the region of Canmore Kananaskis as a town. Also, Canmore is south of Banff, not north.

From Canadian Real Estate Wealth Magazine, a monthly publication focused on building value through property investment, covering topics such as values and trends, mortgages, investment strategies, surveys of regional markets and general tips for buyers and sellers.

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